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Dell proposes settlement with SEC
Ball in Uncle Sam's court
Computer maker Dell said this morning that it has put forth a settlement proposal with the Securities and Exchange Commission to end a probe into Dell's accounting practices that has been underway since September 2006.
Back then, Dell delayed filing its 10-Q quarterly report for the second fiscal quarter report and slammed the brakes on its share repurchasing program after admitting that the SEC had started an informal investigation into its books. Specific allegations of wrongdoing were never divulged by the US government. A few months later, after poking around a bit, the SEC's investigation went formal (without black ties and tails), and the US attorney's office for the Southern District of New York also started looking at Dell's books as far back as 2002 looking for shenanigans.
The NASDAQ market eventually chided Dell in December 2006 for not reporting its financials in a timely enough fashion and threatened to de-list the company. Dell formed an internal audit committee and by March 2007 admitted it found evidence of misconduct and accounting errors. In August 2007, the company restated financials for fiscal years 2003 through 2006, wiping out $92m in profits over the term and slicing a little less than one per cent off sales. In September 2007, Michael Dell, the company's founder and chairman who returned to the role of chief executive officer in the wake of the accounting scandal, said he was not involved with and did not know about any of the shenanigans with the Dell books.
In June of this year, however, with the investigation still ongoing, Dell (the company) said it would set aside $100m from its first quarter of fiscal 2010 profits as it sought a potential settlement with the SEC over the accounting issues. At that time, the company also said that Dell (the man) was in talks with the SEC to resolve allegations that he had withheld information regarding the relationship between Intel (the Chipzilla) and Dell (the company).
The settlement between Dell (the man) and the SEC would not involve him stepping down from the company or being precluded from serving on its board. The settlement for Dell (the company) would involve a civil injunctive action for alleged violations of federal securities laws, including the antifraud provisions; negligence-based fraud charges; and other non-fraud based charges related to disclosures and alleged omissions regarding its commercial relationship with Intel prior to 2008.
Today, Dell provided an update on the status of the discussions with Uncle Sam, saying it had put a proposed settlement to the SEC consistent with the items above. Now the matter is in the hands of the SEC, which will almost certainly accept the terms of the settlement and take the fine money. Whether it is $100m or not remains to be seen. And there is always the possibility that some hungry lawyers will file class action lawsuits claiming shareholders have been harmed by this, dragging Dell into court to try to shake more money out of its pockets. ®